Dean Baker: Cutting Social Security and Not Taxing Wall Street

[eridani]

http://www.nationofchange.org/cutting-social-security-and-not-taxing-wall-street-1368631044

While President Obama is willing to make seniors pay a price for the economic crisis, his administration is unwilling to impose any burdens on Wall Street. Specifically, it has consistently opposed a Wall Street speculation tax: effectively a sales tax on trades of stock and derivatives. The Obama administration has even used its power to try to block efforts by European countries to impose their own taxes on financial speculation.

If the idea of taxing stock trades sounds strange, it shouldn’t. The United States used to impose a tax of 0.04 percent until Wall Street lobbied to eliminate it in the mid-1960s. Many countries, including the United Kingdom, Switzerland, China, and India already impose taxes on stock trades.

The tax in the UK is 0.5 percent on stock trades (0.25 percent for both the buyer and the seller). It dates back more than three centuries. The country raises more than 0.2 percent of GDP ($32 billion in the United States) from the tax each year. The tax has not prevented the London stock exchange from being one of the largest in the world.

There are currently two bills in Congress for a similar tax in the United States. A bill by Minnesota Representative Keith Ellison would impose the same tax as the UK on stock trades and would apply a scaled rate to options, futures, credit default swaps and other derivative instruments. It could raise more than $150 billion annually or more than $2 trillion over the ten year budget window.

A second bill has been put forward by Iowa Senator Tom Harkin and Oregon Representative Peter DeFazio. This bill would apply a 0.03 percent tax to trades of stock and a wide range of other financial assets. According to the Joint Tax Committee, the bill would raise close to $40 billion a year or over $400 billion over a ten-year budget window once it is implemented.

[HiPointDem]

1. kr

[Turbineguy]

2. Maybe instead of taxing Wall Street

we isolate them. They operate in their own make believe economy with their own currency. They can eat eachother instead of wiping the rest of us out.

[liberal N proud]

3. Once Wall Street has devoured the middle class and poor, they will be in their own economy

Then they will have to eat each other.

Greed is a special type of cannibalism.

[xchrom]

4. Du rec. Nt

[MrYikes]

5. not good enough

We need to get their attention.
1% tax on all financial instruments. Then in 10 years raise it to 10%.
We humans have had enough of the un-humans in power. This is our method of taking power back.

[badtoworse]

6. Why do you assume it would only impact Wall Street?

The financial institutions would be on the hook for any trades they did for their own accounts. Any trades they did for client accounts (that's you and me) would have the tax added to the cost of the transaction. That would raise the fees paid on 401k's and IRA's which are held by the population as a whole.

[eridani]

7. Unless you are a computer, why would you care?

You are probably not making thousands of transactions a minute on your IRA or 401k. Besides which there would be a minimum value of, say, $10K for transactions.

[badtoworse]

8. I'm a mutual fund investor and the tax would be added onto the fees I pay the fund manager

When the funds buy and sell securities (which do do frequently), they would have to pay the tax. That tax would be passed onto the investor as a fund expense, i.e. added to the fees.

Most people who have 401k's and IRA's (that's a lot of people) invest in mutual funds and would be impacted. You're painting this as a tax that Wall Street would pay, but ultimately, the tax would mostly be paid by ordinary investors.

[eridani]

9. Ordinary investors won't be paying much. Ordinary people own very little of the stock market

http://www.csmonitor.com/2004/0108/p09s01-coop.html

Wall Street analysts are predicting another great year for the stock market in 2004, and Americans are again pouring their savings into stocks. Tens of billions of dollars have flowed back into equities since last summer. As the Dow and Nasdaq soar, more money is likely to follow. There are also signs of a revival of the '90s myth of the populist stock market -a myth in which Wall Street gives everyone on Main Street a shot at a better life.

Can Americans possibly fall once more for this nonsense? Maybe. The scandals of recent years, most lately in the mutual-fund industry, have done little to debunk the notion that Wall Street is geared toward ordinary investors and that stocks offer a universal path to wealth creation. At the height of the boom, however, the bottom three-quarters of American households owned less than 15 percent of all stock. Barely a third of households hold more than $5,000 in stock. Most Americans have more debt on their credit cards than money in their mutual funds.

Stock-market gains have reflected the top-heavy ownership patterns. Between 1989 and 1997, the most recent year for which there is good data, 86 percent of stock market gains went to just the top 10 percent of households. Yet when the market tanked, it was often ordinary investors who felt the sharpest pain - pain that many will cope with well into retirement. According to a March survey by Greenwich Associates, major retirement pension plans lost $1 trillion from the beginning of 2000 through beginning of 2003.

[badtoworse]

10. You haven't broken it out

I'd still like to see how the taxes would be allocated across the investment spectrum.

As far as individual investors go, they tend to get hosed because they're usually late. The pros are getting out when the individual investors are getting in and they're buying when the little guys have panicked and are selling. I tend to stick with conservative, balanced funds - they don't hit a lot of home runs, but they usually don't get clobbered in a down market either.

[Egalitarian Thug]

12. If the increase were significant, you would need to find a better manager.

Problem sorted. That was easy, wasn't it?

Or is it that you feel that you should be exempted from paying the cost your non-productive extraction from the overall economy imposes on all of us?

[badtoworse]

13. Non-productive? Without investors, we wouldn't have an economy...

...at least nothing resembling what we have now. Investors are already paying substantial taxes. We pay taxes on dividends that are paid out of after-tax profits at the company level. IOW, the income gets taxed twice. We also pay taxes on capital gains. That's enough in my book; we don't need the government soaking investors for even more money.

[Egalitarian Thug]

17. Yes, non-productive. Like the barter economy that is used as justification for a number

economics traditions, that is a myth. I'm a bit surprised to hear you repeating a talking point right out of the Grover Norquist/Lyndon LaRouche playbook. If you want to get into the nitty-gritty, every dollar, shekel, pound, and mark is taxed over and over again as its circulation maps the economy, that's the way it is and it allows economies to exist.

The statement you wrote also carries with it the implication that w/o Wall Street there would be no investment. That's another myth. There are numerous motives and ways to accomplish greater projects w/o resorting to the theft of value from those creating that value.

[mick063]

11. Here is the problem

You are hooked on their crack.


The old form of retirement, pensions, were deemed legal for thievery by our "justice" system. Large swaths of our population had a lifetime of work indirectly stolen.

Buy a company, strip it of assets, put it in steep debt, declare it bankrupt, and the final step, shed the liability of honoring the retirement plans of the employees. They go after the pension plans in the guise of company insolvency.

So now you believe you can trust your IRA's to these folks? Now you think the government will protect you from those retirement thieves?

Ponder this....... 401K and IRA's are so relatively new, there is not enough data to suggest they are viable as retirement plans to begin with.

They have not survived the test of multiple generations. They have not even survived the test of a single generation when the full lifespan of current recipients are taken in to account.

Yet, you are committed. You have no way out. You suffer from a new disease known as "interest alignment". You are forgiving of Exxon drilling in arctic wilderness if your retirement is invested in Exxon. You are forgiving of sweatshops in Bangladesh if your retirement is invested in WalMart. You are forgiving of pumping organic chemicals into our aqua firs. You are forgiving of companies reducing "operational costs" by moving their operations abroad. You are forgiving of the ill conceived plans laid out by our money brokers.

They have happily passed you the crack pipe. Now they are dreaming up a scheme to take your 401k. Believe me. It is coming. Just like Pensions. Just like Social Security. They want it all.

Myself? I invest in three month Treasury Bills. If my federal government goes belly up, there isn't much of a retirement to look forward to anyway. Further, I can now fully support taxing the Holy Shit out of those criminals on Wall Street. I'm not invested in them.

[badtoworse]

14. My wife and I have had IRA's and 401k's for 30 years

We've done extremely well and should enjoy a comfortable retirement. I worry more about the government either finding way to gain access to 401k and IRA money or diluting the value of my nest egg with monetary policy.

[mick063]

18. When corporatists own the government

You are justified to worry about the "government" getting to your retirement.

But first, connect the dots.

Tax breaks for the wealthy + government in debt = government "gets" to your retirement plan to help pay off debt.


The Tea Party meme in full effect. "It is the governments fault."

Well you are right to a certain degree.

The problem is in the solution. Render government powerless or render those that corrupt our government powerless. Those are the options. It really is the bottom line of almost every political argument.

[eridani]

19. You'd be smarter to worry about the banksters grabbing your money

http://www.nationofchange.org/bail-out-out-bail-time-some-publicly-owned-banks-1367416438



The new rules for keeping the too-big-to-fail banks alive: use creditor funds, including uninsured deposits, to recapitalize failing banks.

But isn’t that theft?

Perhaps, but it’s legal theft. By law, when you put your money into a deposit account, your money becomes the property of the bank. You become an unsecured creditor with a claim against the bank. Before the Federal Deposit Insurance Corporation (FDIC) was instituted in 1934, U.S. depositors routinely lost their money when banks went bankrupt. Your deposits are protected only up to the $250,000 insurance limit, and only to the extent that the FDIC has the money to cover deposit claims or can come up with it.

The question then is, how secure is the FDIC?

The reason this risky move would subject the FDIC to insolvency, as explained in my earlier article here, is that under the Bankruptcy Reform Act of 2005, derivatives counter-parties are given preference over all other creditors and customers of the bankrupt financial institution, including FDIC insured depositors. Normally, the FDIC would have the powers as trustee in receivership to protect the failed bank’s collateral for payments made to depositors. But the FDIC’s powers are overridden by the special status of derivatives. (Remember MF Global? The reason its customers lost their segregated customer funds to the derivatives claimants was that derivatives have super-priority in bankruptcy.)

The FDIC has only about $25 billion in its deposit insurance fund, which is mandated by law to keep a balance equivalent to only 1.15 percent of insured deposits. And the Dodd-Frank Act (Section 716) now bans taxpayer bailouts of most speculative derivatives activities. Drawing on the FDIC’s credit line with the Treasury to cover a BofA or JPMorgan derivatives bust would be the equivalent of a taxpayer bailout, at least if the money were not paid back; and imposing that burden on the FDIC’s member banks is something they can ill afford.

<snip>

The deposits of U.S. pension funds are well over the insured limit of $250,000. They will get raided just as the pension funds did in Cyprus, and so will the insurance companies. Who else?

Most state and local governments also keep far more on deposit than $250,000, and they keep these revenues largely in TBTF banks. Community banks are not large enough to service the complicated banking needs of governments, and they are unwilling or unable to come up with the collateral that is required to secure public funds over the $250,000 FDIC limit.

The question is, how secure are the public funds in the TBTF banks? Like the depositors who think FDIC insurance protects them, public officials assume their funds are protected by the collateral posted by their depository banks. But the collateral is liable to be long gone in a major derivatives bust, since derivatives claimants have super-priority in bankruptcy over every other claim, secured or unsecured, including those of state and local governments.

[Egalitarian Thug]

20. I'm really confused here. What you wrote is the essence of "I've got mine, fuck you".

You're very concerned that somehow "da gubmint" is going to upset your apple cart by changing a system that, even when it works exactly as the propaganda promises, leaves 5% - 20% of its participants destitute in order to pay the rest.

[badtoworse]

21. I believe in equal opportunity, not equal outcome

"I've got mine, fuck you"? How do you get that? My wife and I have had good jobs, not 1% by any stretch, but we did well. We wanted a comfortable retirement, so we planned and worked toward that end - we live modestly and we've been disciplined, conservative investors all through our careers. As a result, we've accumulated the nestegg we'll need for retirement. There is nothing wrong with having a plan and there is nothing wrong with being successful.

[Fumesucker]

15. Sales tax

I even pay sales tax when I go to the thrift store to buy used clothing and now there is legislation to force sales taxes on all internet purchases.

If sales taxes are due on used clothing at the thrift store why are sales taxes not due on stock purchases?

[byeya]

16. Agree. Some states even tax the sale of food and/or medicine.